INSIGHT: Malaysia draws a line for biodiesel

07 July 2006 16:10  [Source: ICIS news]

By Simon Robinson

LONDON (ICIS news)--Malaysia's’s moratorium on new biodiesel plants should come as no surprise.

Concerns have been raised by the Plantation Enterprises and Commodities Ministry that the demand for crude palm oil (CPO) a key commodity for the country could get out of hand.  

Malaysia’s government has received a rash of requests for permits to build plants to convert palm oil to biodiesel with some 32 biodiesel projects worth $738m (€575m) approved so far.

Palm oil is widely used in Malaysia for cooking and the government is worried about three issues. The most important, nationally, is that there could be a shortage, which would push up the cost of living for individual Malays.

Secondly, a shortage could lead to speculation in the commodity, which could be damaging for palm oil farmers and help upset the rural economy. Both issues are potentially politically destabilising.

Thirdly, the government thinks it can detect a biofuels bubble forming. It rightly worries that if it approved all the projects - 87 applications by the end of June - a lot of people could lose a lot of money should the industry come in for an unexpected hard landing.

Local investors with no previous experience have inundated the government with applications for biodiesel plans, analysts suggest. Some 62% of investment in the projects approved thus far comes from domestic firms. The remainder comes from companies from as far apart as Australia, Italy and the US.

You can’t blame people for being tempted to join the biofuels bandwagon. Biofuels are booming and the momentum behind the drive to use renewables in motor fuels is significant.

But a number of questions need to be answered before many individuals are convinced that biofuels are all they are said to be.

Fundamentally, are they really less damaging to the planet than oil-based products? It may take fertilisers to grow the fuels in sufficient volume; it takes energy to dig them up and transport them to be processed.

Processing takes energy and they have to be delivered to the point of use. Would food products, like palm oil be better used as food? Malaysia has decided that, in this case, actually they should.

Why can’t we just travel a bit less, operate webs of logistics more sensibly and use less fuel?

Burning precious hydrocarbons in fuel is a profligate waste of scarce resources, mitigated only somewhat if they are renewable.

As a global society, we should be miserly with their use. We should insulate more and heat or cool less. That way we could reduce our dependence on oil from overseas, which is one of Malaysia’s goals.

Converting waste vegetable matter into fuel is one thing but converting otherwise valuable agricultural commodities is another? Globally we should ensure that people have enough locally-produced food to eat before we start diverting those food stuffs into fuel?

By: Simon Robinson
+44 20 8652 3214

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